Wobbly Dollar puts Asian economies at Risk

The Asian economies do not seem to have learnt a lesson on the last crisis that hit tem in late 90s. The Dollar addiction of these export driven economies makes them hostage to the fluctuations of the Greenback.

With US not able to control it fast mounting debt there is a very real scenario of the Dollar crashing. All the asian countries including India have huge reserves of US Dollar and any sign of the Dollar crashing is making them sweat.

This is an op-ed in mint which does paint a grim scenario for the Asian economies. In light of this articles the recent decision by the RBI to buy 200 Tons of Gold makes immense logic. IMO we can expect more such purchases by the RBI.

Cautious Asian bankers may call Obama’s loan

Barack Obama sure has lots to discuss on his maiden voyage to Asia as US President. Yet all this is just conversation compared with the real issue on Asia’s mind: a wobbly dollar that’s putting the region’s money at risk.

Think of this trip as a visit to America’s banker, and an unpleasant one. Asia wants assurances that the US can repay its fast-mounting debt and prevent a dollar crash. The reality dawning on Asia is that Obama can’t offer them such a pledge—not with US borrowing so out of control.

Dollar anxiety is reaching a fever pitch. It’s sucking the life out of key issues pertaining to the future, and it’s time to do something about it. Asia needs a plan to scrap its dollar addiction, and it can start in Singapore this week.

Let’s dispense with the fiction that the annual Asia-Pacific Economic Cooperation (Apec) group summit will achieve much. Trade frictions are rising, the US is mired in recession, Japan is experiencing deflation and big pacts on climate change or denuclearizing North Korea are non-starters.

The best way to use this summit is to discuss an exit strategy. Not an end to government stimulus efforts, but a dismantling of Bretton Woods II. The system of tying currencies to the dollar that emerged after the crises of 1997 and 1998 is doing more harm than good.

Currency risk

In 2009, Asia’s currency-reserve arms race is mostly about risk. The wisdom of amassing huge dollar stockpiles was once clear enough. It was about walling off economies in times of turmoil and not having to go hat in hand to the International Monetary Fund (IMF). Now Asia is trapped.

IMF crystallized the problem recently when it said the dollar is still overvalued. Considering the US’ debt load, near-zero interest rates and rising unemployment, the currency is clearly too strong. A weaker dollar makes sense and it’s what the global economy needs. Asia must deal with it.

Asia doesn’t have a policy infrastructure to oversee such an effort. Japanese Prime Minister Yukio Hatoyama’s desire for an Asian version of the European Union is great—it’s just a decade or more away. Apec is still an opportunity to pave the way for Asia to repatriate trillions of dollars and stop being America’s financier.

Within its means

It won’t be easy and, chances are, US treasury secretary Timothy Geithner would respond coolly. Yet the money could be used to deepen Asian bond markets and finance better roads, bridges, ports and power grids. It could fund vitally needed improvements in education and healthcare.

Just as Asia needs to stop parking its savings in the US, the biggest economy must learn to live without Asia’s money. It would force the US to live within its means.

Yes, this is a far-fetched idea. And there’s no widely accepted way to go about the process. The point is that we need to get radical if we are going to reduce financial imbalances. In Asia, that means letting currencies strengthen and the dollar weaken. Few things would do more to stabilize markets than this shift playing out in a smooth way.

We can wait until the dollar collapses and Asian central banks rush for the exits. Or we can devise a transparent process to avoid such a scenario. It may not happen without an Asian version of the Plaza Accord, the 1985 agreement to weaken the US dollar against the yen. Why would South Korea or Thailand wean themselves off dollars if China won’t?

Worried about the impact of the falling Greenback, on their fragile economic recoveries, countries around the world are trying to prop up the Dollar. There is also renewed pressure on China to let it's currency the Yuan appreciate against the Dollar, which it has been pegging to a very narrow band against the Dollar.

Governments around the world stepped up efforts to stem the U.S. dollar's slide, as officials grow increasingly concerned about the impact of the weak greenback on their nascent economic recoveries.

Thailand, South Korea, Russia and the Philippines have been snapping up dollars this week in order to hold down the value of their currencies, traders said Wednesday, as the U.S. currency wallowed near 15-month lows.

The fresh buzz over the dollar's fall prompted Treasury Secretary Timothy Geithner, visiting Tokyo on Wednesday, to repeat the Obama administration's commitment to a strong dollar. Still, Washington hasn't taken any concrete steps to arrest the slide. The weaker dollar is actually benefiting the U.S. as it struggles to come out of recession by helping keep U.S. exports competitive.

China is coming under new pressure from Pacific Rim countries to let its dollar-linked currency rise in value. On Wednesday, China's central bank made a nod to concerns about the declining dollar and yuan by issuing a rare change to the official language of its exchange-rate policy. The central bank said it would take major currency trends into account in setting policy, though it wasn't clear what impact that may have on the yuan's future value.

The U.S. wants to see a stronger yuan, though Washington has avoided explicit public pressure on China to abandon its policy of managing its currency. But in the jargon of finance ministers, Mr. Geithner has made clear that's what he thinks should happen. In an op-ed piece in Thursday's Wall Street Journal Asia, he emphasized the advantages of "market oriented exchange rates in line with economic fundamentals."

The fear is two-fold. If currencies surge against the dollar, it damages the ability of countries in the region to compete in world markets, by making their exports more expensive. What's more, one of their major competitors -- China -- ties its currency to the dollar. As the yuan sinks in tandem with the dollar, China is able to keep its export prices low and price out competition.
A concluding statement from the assembled APEC officials is expected to underline the importance of flexible exchange rates to sustainable global growth -- generally viewed as code for a rise in the Chinese yuan. Such efforts are unlikely to bear fruit in the near term, which means these countries must act on their own to slow their currencies' rise.

Experts estimate that some of the largest emerging economies may have spent as much as $150 billion on currency intervention over the past two months, judging from the growth of their international reserves, according to data from Brown Brothers Harriman. While that's not a huge amount in the currency markets, which have turnover of more than $3 trillion a day, traders pay keen attention to what the authorities are doing and where they are likely to intervene.

For the last three years, the International Monetary Fund has been pressing China to revalue its currency. At the recent meeting of finance ministers from the Group of 20 nations in Scotland, the IMF once again said the yuan "remains significantly undervalued from a medium-term perspective."

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To countries like Iran and Venezula who have been tying to end the domination of the US Dollar this must be coming in as a big reality check, the Dollar remains the most dominant currency in the world today and will remain so in the near future also.

No replacement for US dollar: PM
Praising the entrepreneurial spirit of the American enterprise, Prime Minister Manmohan Singh has said that there can be no substitution for the US dollar.

"As far as I can see right now there is no substitute for the dollar," the Prime Minister said in an interview to CNN.

Responding to questions about the economic crisis in the United States, the Prime Minister said: "There is a temporary setback and temporary questioning, about relevance of the American model, but I have seen these things much before."

Singh said even the Chinese, who holds 2.5 trillion dollars in reserve assets, have not disposed off even a fraction of them.

"That is a measure of the confidence that the world has in the dollar. There are problems. There is the confidence problem, which can be very destabilizing," he said.

"My own feeling is that the world has not entered an era of irreversible shift in the economic strength of the United States," he added.

No replacement for US dollar: PM
Praising the entrepreneurial spirit of the American enterprise, Prime Minister Manmohan Singh has said that there can be no substitution for the US dollar.

"As far as I can see right now there is no substitute for the dollar," the Prime Minister said in an interview to CNN.

Responding to questions about the economic crisis in the United States, the Prime Minister said: "There is a temporary setback and temporary questioning, about relevance of the American model, but I have seen these things much before."

Singh said even the Chinese, who holds 2.5 trillion dollars in reserve assets, have not disposed off even a fraction of them.

"That is a measure of the confidence that the world has in the dollar. There are problems. There is the confidence problem, which can be very destabilizing," he said.

"My own feeling is that the world has not entered an era of irreversible shift in the economic strength of the United States," he added.

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What nonsense article!
USA probably have explained to India what they should say in public ! But let us not forget that India's words are different then India's acts !Just recently India has bought HUGE amount of gold !!
Russia China and many others are doing the same just more discretely...
So when it comes to savings there is alternative - GOLD !

This article just aims to slow inevitable fall of the dollar that if panic starts can fall like brick and trigger USA hyperinflation!

There is NO recovery in USA it is just trillions of dollars printed bubble that will explode in their face some day and destroy savings of many naive people!

What nonsense article!
USA probably have explained to India what they should say in public ! But let us not forget that India's words are different then India's acts !Just recently India has bought HUGE amount of gold !!
Russia China and many others are doing the same just more discretely...
So when it comes to savings there is alternative - GOLD !

This article just aims to slow inevitable fall of the dollar that if panic starts can fall like brick and trigger USA hyperinflation!

There is NO recovery in USA it is just trillions of dollars printed bubble that will explode in their face some day and destroy savings of many naive people!

BUY GOLD people, dump the worthless dollar before it is to late !

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What a nonsense notion,

USA probably have explained to India what they should say in public !

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Can you explain us about this allegation?

So rest of the things Our PM said on that interview where all told by US?

Care to explain with proofs or be mild and little skeptical to your beliefs. That will help discussion.

So rest of the things Our PM said on that interview where all told by US?

Care to explain with proofs or be mild and little skeptical to your beliefs. That will help discussion.

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I'm sorry if I sounded rude- That was more to avoid long explanations and put accent on how India on one hand buys huge quantity of gold and on other tries to convince people that everything is OK with USA.
Perhaps just to calm the game after buying so much gold or simply to give (verbal ) support to dollar that costs nothing and do favor that USA might appreciate. -(or both)
But by doing that there is trap in preparation for small savings if inflation of dollar skyrockets (like in 1st USA depression) people will loose everything they have over the night.
I used to live through hyper inflation and I know what is all about !
Loaf of bred costs 1 million!

What proofs do you need? Every day rising price of gold? USA hiding true number of unemployed (by some estimates close to 20% and rising)
Dollar loosing value, USA huge deficit pumped up by huge war expenses
(expenses projected to make growth of USA defense budget by 6% every year to over 600billions for next year) etc.......

Correct me if I'm wrong -
I just do not see any proof of USA (jobless) recovery.All "proves" of USA recovery are based on some numbers from stock market or GDP growth and all that is based on (probably trillions) of printed dollars that create new MEGA bubble.

Nobody really knows how much money Fed has printed and how much toxic assets they still have be cause their operations are controlled by nobody!
Youtube is full of video of some very prominent economists who are warning now for quite some time the worthlessness of the dollar be cause of endless printing.Internet independent news also!
All big capitals have migrated from USA to Asia or have shares linked to Asian firms in USA!

USA( not like India or China ) is country without industrial base any longer ...
And financial sector leads the game now!
But they are root of the problem not solution!
USA industrial base apart from military and few other sectors is practically non existent cause transferred to 3rd world countries (for finding profits). The bank-sters who brought collapse of Wall Street casino are back in the game stimulated by USA administration to restart the game!
Bubble that replaces bubble, that replaces bubble etc.....
But this time bubble is to big....

Even if my comment might look to anybody like " nonsense notion" I have seen or read hundreds of intelligent people of whom many are economist and think
basically the same about the situation.

There is no proof for USA entering depression just indicators and some experts say that it can be much worse than one before the 2nd world war. For me that is more than enough and MUCH more credible than declaration of any politician!

The 200 Tons of gold that India bought is not even 10% of the foreign exchange reserve of the country. This was a special case where India bought the gold from IMF as they needed to have liquid money to lend more to poorer countries in Africa.

Moreover due to the limited quantity of Gold available it will never be the preffered alternative. The fact that all the countries including China are buying Dollar Bonds is an indication to the intrinsic strength of the currency.

Only the Euro can come up as an alternative provided that the EU gets it's act together.

The 200 Tons of gold that India bought is not even 10% of the foreign exchange reserve of the country. This was a special case where India bought the gold from IMF as they needed to have liquid money to lend more to poorer countries in Africa.

Moreover due to the limited quantity of Gold available it will never be the preffered alternative. The fact that all the countries including China are buying Dollar Bonds is an indication to the intrinsic strength of the currency.

Only the Euro can come up as an alternative provided that the EU gets it's act together.

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I'm sorry but I don't agree and to make long conversation short let us say that
I belong to the people who are convinced that dollar will collapse sooner or later
and that only protection is GOLD. All the rest is just illusion and speculation...
and manipulation of badly informed people...............

Sir just to put the things in perspective and to show that India did not buy Gold to hedge it's bets. It was a political deal to show to the IMF and other countries the financial muscle of India and also that India was there to support the IMF.

The sale, which an IMF official said was concluded at an average price of about $1,045 an ounce over a two-week period in the latter half of October, will relieve the market of some of uncertainty over how and when the fund would execute its plan to sell 403.3 tonnes of gold, about one-eighth of its total stock.
"This transaction is an important step toward achieving the objectives of the IMF's limited gold sales program, which are to help put the fund's finances on a sound long-term footing and enable us to step up much-needed concessional lending to the poorest countries," the IMF's managing director, Dominique Strauss-Kahn, said in a statement.

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India's foreign exchange reserves held at the central bank totalled $285.5 billion on Oct. 23, of which gold comprised more than $10 billion. The latest purchase would appear to lift its share of gold holdings to an estimated 6 percent or so, much less than most of the developed world but four times China's share.

Despite all the experts predicting the doomsday of the US Dollar, china has indicated that they will stick to the dollar. They see the US Dollar falling in the short term but they are rooting for a stronger Dollar to bring the Global economy back in Pink health.

China has maintained a consistent allocation of its foreign exchange reserves across different currencies, a senior official said on
Friday, suggesting that any diversification away from the dollar has been gradual.
Wang Xiaoyi, deputy head of the State Administration of Foreign Exchange, which manages China's $2.3 trillion of currency reserves, also said the weakening of the dollar was a long-term trend, not a near-term worry.

China's desire to see a stronger dollar was reinforced by an opinion piece in the People's Daily, the main newspaper of the ruling Communist Party, which said that the slumping greenback was harming the world economy.

Global markets have periodically been shaken by the idea that China could dump dollars, as it is estimated to hold about two-thirds of its currency reserves in dollar-denominated assets. Beijing itself has long declared that it aims to diversify its forex reserves, the world's biggest such stockpile.

"We now have similar proportions of different currencies in our forex reserves as we had before," Wang said on the sidelines of a conference in Beijing.

"The weakening of U.S. dollar will be a long-term trend but we don't see big fluctuations in the near term," he added.

Despite expressions of concern about the yawning U.S. debt, China has continued accumulating dollars this year as it must buy those streaming into the country through its trade surplus to keep the yuan from appreciating.

"We are not making any big adjustment in how to manage our foreign exchange reserves, and all our operations are in line with our existing forex management goal," Wang said.

china has cornered itself. it is in its own interest to hold the dollar at a respectable value. even if the dollar dives, they will buy and arrest the slide. lest their exports will suffer hugely (remember US is their major market) and the debt they own will suffer. this will have a huge impact on the chinese economy.
also they have to keep US on the right side inspite of being a creditor lest US dishonours the debt in the future.
US has a major tool to play with china.

The 200 Tons of gold that India bought is not even 10% of the foreign exchange reserve of the country. This was a special case where India bought the gold from IMF as they needed to have liquid money to lend more to poorer countries in Africa.

Moreover due to the limited quantity of Gold available it will never be the preffered alternative. The fact that all the countries including China are buying Dollar Bonds is an indication to the intrinsic strength of the currency.

Only the Euro can come up as an alternative provided that the EU gets it's act together.

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My new argument is that GOLD is ABOVE 1200$ already and keeps rising EVERY DAY!
Plenty of economist have predictions for rise up to 2000$ some even higher for 2010!
And while I'm at it I read your article and it just doesn't make much sense

WHY would India buy gold if they don't expect the important rise in value of gold to the dollar?
200 tons is huge amount of dollars!
Who cares for IMF official reasons ("liquid money" as you call it ) they are USA bank institution and represent world bankers and their manipulation of the gold prices on world market and not some stupid reason that they care about some poor African country ! Nonsense!
That is story for children ! I'm to old to accept such nonsense!

I have impression that you have red some article and than you "explain" to
me with exactly same words what you "think"
And you think exactly what they've told you in that article to think.....

I read myself you know and I read rubbish articles often.
The truth behind those articles is that they serve only to manipulate
peoples opinion and turn their eyes from TRUE reasons (where the money is) !

Dollar is collapsing and ALL independent sources are announcing that for quite some time !

So I advise you strongly to change the newspapers you read if you don't want to loose contact with reality when it comes to inflation of dollar......
If you have any dollar savings you better change it in something else or you'll regret that.........

I'm not economist but I'm not stupid either when it comes to money they will never say truth in times of crisis be cause they can loose plenty of money
Yet despite their (IMF USA gov. and such ) propaganda central banks of many countries are buying GOLD!
And ordinary people like me ALSO!

This buying of gold by India was in my opinion for one reason only !
India just like many others Russia China (even Bangladesh!) buy gold to protect their reserves from COLLAPSING dollar!
I'm sure that India will buy more just like Russia and China so we should think with our heads not what they tell us in newspapers

Despite all the experts predicting the doomsday of the US Dollar, china has indicated that they will stick to the dollar. They see the US Dollar falling in the short term but they are rooting for a stronger Dollar to bring the Global economy back in Pink health.

BUT OF COURSE!
They must defend dollars be cause they still have so many of them!
The only problem is that what they say is NOT TRUTH at all and they know it!

Bat they just can't say "people dollar is CRAP get rid of it" be cause their dollar savings will loose value over night if panic starts and everybody starts massively to buy gold! But that will happen anyway next year!

you may have reservations about the strength of the Dollar. also you will find people with contrarian views .

Regarding shifting to Gold the main obstacle is that there is not enough Gold to cover the currencies of the world. you can begin to realise the problem that if India bought 200 tons of gold and that is not even 10% of her Foreign reserves, out of a total of about 285 Billion US $, just imagine how much gold China will have to buy with a for a Forex Reserve of 2.3 Trillion US $, another Trillion Dollars for Japan, 0.5 Trillion Dollars for Taiwan.

My friend the list is very long and exhaustive. We simply do not have enough physical Gold to cover the Global Forex Reserve.

Please go over the statement made by a senior Chinese Govt. official which I have posted today.

Wang Xiaoyi, deputy head of the State Administration of Foreign Exchange,

Despite expressions of concern about the yawning U.S. debt, China has continued accumulating dollars this year as it must buy those streaming into the country through its trade surplus to keep the yuan from appreciating.

"We are not making any big adjustment in how to manage our foreign exchange reserves, and all our operations are in line with our existing forex management goal," Wang said.

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Also please note one thing about the price of Gold. Gold prices are quoted in US Dollars and that any dip in the value of the Dollar will increase the price of the Gold, otherwise the seller will end up with lesser money is his/her own currency. If the US dollar starts rising tomorrow, the Gold prices will start dipping again. Though let me be frank the corelation is not a linear corelation. There are other factors also involved.

Sir just to put the things in perspective and to show that India did not buy Gold to hedge it's bets. It was a political deal to show to the IMF and other countries the financial muscle of India and also that India was there to support the IMF.

Do me a favor please and don't call me "sir" ...I'm civilian and have no habit of those things.....
I didn't come to this forum to play officer but for fun...thanks in advance

Now comment
The only countries that would directly support IMF and World Bank are EU and USA
India doesn't belong to that special club (world of G7 (the richest countries)) and has no reason to support USA or EU financial institutions - bankers unless asked by them as favor to do so....

Jakojako777,
you may have reservations about the strength of the Dollar. also you will find people with contrarian views .

I know that but they are WRONG !

Regarding shifting to Gold the main obstacle is that there is not enough Gold to cover the currencies of the world.

You've said that before already and I was not saying GOLD will replace dollar
but will be shelter just like Silver that will protect from inflation of worthless paper money when real crisis start

you can begin to realise the problem that if India bought 200 tons of gold and that is not even 10% of her Foreign reserves

you keep repeating that weak argument on which I have answered before already

, out of a total of about 285 Billion US $

say whatever you want that is still huge amount of money even for India

, just imagine how much gold China will have to buy with a for a Forex Reserve of 2.3 Trillion US $,

you are really not well informed person, China has already made steps towards exit (I'm not economist and I can't explain their recent moves and purchases they've made but it is definitely NOT the numbers in $ you show!)

another Trillion Dollars for Japan, 0.5 Trillion Dollars for Taiwan.
why are you throwing at me all this numbers?!!
that is THEIR problem not mine!
That is why GOLD will rise SKY HIGH in price once they start to buy it !!

My friend the list is very long and exhaustive. We simply do not have enough physical Gold to cover the Global Forex Reserve.

You repeating yourself all the time ! Who cares if there is not enough !
(USA printing machines work day and night OF COURSE THERE IS NOT ENOUGH !)
The point is Gold is NOT suppose to replace dollar as money and you talk like that is function of the Gold ! IT IS NOT !
So try to understand basics please! NOBODY is suggesting Gold as new currency!

Please go over the statement made by a senior Chinese Govt. official which I have posted today.

Sorry I don't read that Chinese propaganda it is WAIST of time !
They just say what is in their INTEREST that is all ...

Also please note one thing about the price of Gold. Gold prices are quoted in US Dollars and that any dip in the value of the Dollar

WHAT? I don't even understand now what are you talking?!? Gold price can be "qouted" in any currancy and Gold is rising against ALL currencies
For me that counts is Euro and Dollar I don't check crap like pound and Jen I'm
not interested!
I check Euro and Dollar all the time is THE SAME they fall against the Gold at same speed with tiny difference!
The Gold price is only ADJUSTING to INFLATION of those 2 major world currencies ! That is all !
If the US dollar starts rising tomorrow, the Gold prices will start dipping again.

The problem is that will NOT HAPPEN cause Dollar has next year even much more to collapse when hyper inflation in USA starts!

Though let me be frank the corelation is not a linear corelation. There are other factors also involved
Yeah like always the problem is you are looking in the wrong "factors"